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Student Loan Refinancing

How Does Debt-to-Income Ratio Affect Student Loan Refinancing?

July 28, 2020

Refinancing student loan debt is a great way to save in interest costs over the life of the loan and may help reduce your monthly payment. But before you do so, it is important to know how your finances will affect your refinancing. In order to get a low rate to help improve your savings, you need to meet certain criteria for refinancing. For example, your credit score plays a major role when you are applying for loans. Lenders also look at a number of additional factors when determining whether an applicant will be approved for refinancing, and if so, what rate would be appropriate for them. One factor that affects student loan refinancing is a person’s debt-to-income ratio. Read on to find out how this ratio is calculated and how it can affect refinancing.  

 

What is Debt-to-Income Ratio?

Your debt-to-income ratio is a percentage that determines whether your income can pay for all of your debts, including the new student loan you apply for. The lower the ratio the better because it means you have additional income to cover your debts and other expenses. The debts that will be included in the ratio are mortgage or rent payment, credit card debt, auto loans, child support, alimony, personal loans, and any other financial debts. Your monthly gross income is the amount used in the ratio. 

 

Here is an example of how to determine your debt-to-income ratio. If you have a $1,300 mortgage payment, a $350 car loan payment, and a $600 student loan debt payment, your total monthly debt payments add up to $2,250. If your monthly income is $4,000 your debt-to-income ratio is found by dividing your total debt payments by monthly gross income, therefore $2,250/$4000 = 56%. This ratio would indicate to lenders that more than half of your gross income pays for outstanding debts and therefore there may not be much income left to pay other expenses. 

 

Debt-to-Income Impact on Refinancing

Although the exact ratio that lenders prefer for debt-to-income ratio is not disclosed, most lenders will look for a ratio of 50% or less to qualify for refinancing. However, to score the lowest interest rates a much lower ratio may be needed. If you find yourself with a ratio of more than 50%, like the example above, don’t panic. There are ways to improve your ratio to help you qualify for refinancing. You can improve your ratio by: 

 

1. Increasing Your Income:

Yes it is easier said than done, but there are various ways you can try to increase your income.  

  • Overtime – Is overtime an option at your current employer? If so, take advantage of it to earn some extra money. It will not only help you increase your income but you can use the extra money to pay down your debts faster, thereby reducing your ratio.  
  • Ask for a raise – If it has been a while since you have received a raise and you think you have earned one, prepare a document outlining your accomplishments and request a meeting with your boss. 
  • Take on a side hustle – If you are able to fit in additional employment, give it a shot to earn more income. 

 

2. Pay Down More Debt Before Refinancing

If your ratio is too high to qualify for refinancing or does not qualify you for a much lower interest rate, try quickly paying off other debts before applying to refinance student loans. Decreasing your monthly debt obligations will help lower your debt-to-income ratio. Try some of these options to quickly pay down debt.  

  • Start a side hustle – Start working for a grocery shopping service, start an online Etsy shop, walk dogs, babysit, or many other possibilities. Any way you can earn extra money outside of your day job can be put towards your debts. 
  • Sell unused items around your house – Sell clothing online, clear out old books and movies to sell on eBay or Amazon, or have a garage sale.  
  • Use any extra money you receive to pay debts – Think stimulus or tax refund checks, rebates and gift money. 
  • Find money in your budget to pay extra on your lowest debt balance to quickly eliminate that monthly obligation. You may find money in your budget by eliminating restaurant purchases for a couple of months or canceling unused subscription services.  

 

3. Getting a Cosigner

f you are not able to financially qualify on your own, some lenders will allow a cosigner to help with qualifying. A cosigner is a person with a great credit history that will apply for the loan with you to help improve your chances of qualifying for a better rate because of their good finances.   

 

Improving your debt-to-income ratio will allow you to qualify for refinancing from more student loan lenders. Some lenders may allow a higher ratio for debt-to-income, for example, 65%, however, their interest rates may be much higher (which may not save you any money) and they may be the only lender you qualify with. This is a drawback since qualifying with more lenders will allow you to have more rates to compare. In addition to qualifying for more potential lenders, improving your ratio will also allow you to qualify for the lower interest rates that lenders offer. If a lender requires a 50% debt-to-income ratio but your ratio is 20%, you could qualify for the lower rates that the lender has than a person with a higher ratio.  

 

If you are ready to refinance your student loan debt and want to see how much you may be able to save, check out our Student Loan Refinance Calculator.* 

 

Now that you know what your debt-to-income ratio is and how it affects student loan refinancing, you can work to improve your ratio if needed. When you are paying off student loan debt it may seem overwhelming, but taking charge of your finances by paying down debt and refinancing to save in interest costs can help improve your financial future and make it quicker to pay off your debts. Good luck!

 


 

*Subject to credit approval. Terms and conditions apply. 

 

Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.

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pharmacist smiling after refinancing student loans
2020-08-06
A Pharmacist’s Guide to Student Loan Refinancing

Becoming a pharmacist can be a lucrative career decision. However, it requires a significant amount of education. According to the U.S. Bureau of Labor Statistics, the typical entry-level education requirement for pharmacists is a doctoral or professional degree. To get the necessary degrees, you likely borrowed a significant amount of money. In fact,  the Pharmacy Times reported that the average student loan debt for pharmacists is over $163,000.    By Kat Tretina   Despite the hefty student loan burden, your career path comes with high earning potential. As of 2018, the median salary was $126,120 per year. With such a large income, student loan refinancing is a smart strategy, especially if you work in the private sector.   

Why you should refinance pharmacy school loans

If you work in the private sector as a pharmacist — meaning you work for a pharmacy like Walgreens or CVS rather than a non-profit hospital or health organization — you’re ineligible for Public Service Loan Forgiveness, even if you have federal student loans. If you have high-interest student loan debt, that means you’re a prime candidate for student loan refinancing.    Student loans for graduate and doctoral degrees tend to have the highest interest rates of any education loan. Even Grad PLUS Loans, a form of federal loan, have sky-high interest rates. For loans disbursed after July 1, 2019, and before July 1, 2020, the interest rate is a whopping 7.08%. With such a high rate, your loan balance can quickly balloon out of control.    With student loan refinancing, you take out a loan from a lender like ELFI* for the amount of your combined existing debt. The new loan has completely different repayment terms, such as length of repayment and interest rate. Your old loans are consolidated together, so now you’ll have just one loan and one easy monthly payment.   

Benefits of refinancing pharmacy school loans

There are two main benefits to student loan refinancing  

1. You can save money

With a pharmacist’s salary and good credit, you could qualify for a lower interest rate when you refinance your debt, allowing you to save a significant amount of money.    For example, let’s say you had $163,000 in student loan debt at 7.08% interest and a 10-year repayment term. Over the course of your repayment, you’d pay back a total of $227,915; interest charges would add $64,915 to your loan cost.    But let’s say you refinanced your debt and qualified for a 10-year loan at just 5% interest. You’d pay back a total of just $207,464. Refinancing your loans would allow you to save $20,451.    Use the student loan refinance calculator to find out how much money you can save.*   

2. You can reduce your monthly payment

If you have a large amount of student loan debt, your monthly payments may be more than you can afford. If that’s the case, student loan refinancing can help make your payments more affordable.    When you refinance your debt, you can opt for a longer repayment term. With a longer term, you may pay more in interest, but the tradeoff may be worth it to give yourself more breathing room with your cash flow.    Let’s say you had $163,000 in student loan debt with a 10-year repayment term. At 7.08% interest, your minimum monthly payment would be a whopping $1,899 per month. If you didn’t qualify for a lower interest rate, but extended your repayment term to 15 years, you’d reduce your monthly payment to just $1,472 per month, freeing up $427 from your budget.  

How to refinance pharmacy school loans

To refinance your loans, follow these four simple steps:   

1. Find out if you meet the eligibility requirements

Each refinancing lender has its own eligibility criteria. At Education Loan Finance, borrowers need to meet the following requirements: 
  • Must be a U.S. citizen or permanent resident
  • Must have at least $15,000 in student loans
  • Must have a bachelor’s degree or higher
  • Must have a minimum income of $35,000
  • Must have a credit score of at least 680
  • Must have a minimum credit history of 36 months
  • Must have received a degree from an approved post-secondary institution
 

2. Ask a friend or relative to cosign the loan

If you don’t meet the minimum credit or income requirements, consider asking a friend or relative with good credit and reliable income to cosign the loan application with you. A cosigner shares responsibility for the loan with you, lessening the lender’s risk. Having a cosigner on the application increases your chances of getting approved and qualifying for a lower interest rate than if you applied on your own.   

3. Request a loan estimate

Before submitting a loan application, get an estimate so you know what interest rate and loan term to expect. With ELFI, you can get a rate quote without affecting your credit score so you can select the right loan that works for you.*   

4. Submit your loan application

Once you find a loan that matches your needs, you can complete the loan application. You’ll be asked to enter information about yourself, including your name, address, Social Security number, employer, income, and current loans.   

4 other options for managing your loans

While student loan refinancing can be a smart idea for pharmacists, it’s not for everyone, especially if you don’t work in the private sector. If you decide against refinancing your loans, you may be able to get some help with your student loan debt in the form of loan forgiveness, reduced payments, or repayment assistance.   

1. Income-driven repayment plans

If you have federal student loans and can’t afford your payments, you may eligible for at least one of the four income-driven repayment (IDR) plans. Under these plans, the federal government extends your loan term to 20 to 25 years and caps your monthly payments at a percentage of your discretionary income. Depending on the repayment plan, your income, and your family size, you could significantly reduce your monthly payment. Some borrowers even qualify for $0 payments.   

2. Public Service Loan Forgiveness

If you have federal Direct student loans and work for a government agency or non-profit organization, you may qualify for loan forgiveness through Public Service Loan Forgiveness (PSLF). With PSLF, the government will forgive the remaining loan balance after you work for an eligible employer for 10 years and make 120 qualifying payments.   

3. Substance Use Disorder Workforce Loan Repayment Program

The National Health Service Corps (NHSC) operates the Substance Use Disorder Workforce Loan Repayment Program. Under this program, eligible pharmacists can receive up to $100,000 in student loan repayment assistance. In exchange, you have to make a service commitment to work in a substance use disorder site with a health professional shortage area as designated by the NHSC. For more information, visit the NHSC website  

4. National Institutes of Health Loan Repayment Program

Highly qualified pharmacists willing to commit to biomedical or biobehavioral research careers can receive up to $50,000 in student loan repayment assistance. In return, you must commit to working in a research area in an approved subject. Visit the National Institutes of Health website for more information.   

Repaying your student loans

If you’re a pharmacist with education debt, you should know that you’re an excellent candidate for student loan refinancing. Whether you want to save money or lower your monthly payments, refinancing your loans can help you achieve your goals.*   
  *Subject to credit approval. Terms and conditions apply.   Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.
woman asking employer for student loan assistance
2020-08-05
How to Ask Your Employer to Help Pay Student Debt

These days, employers offer all kinds of benefits to keep employees, from kombucha on tap and innovative new office spaces to ping pong tables and video game rooms. The list of benefits seems to grow all the time.   When you think about it, though, how much do you really need that kombucha on tap? Instead, what many graduates need is help with their ever-mounting student loans. In combination with other methods of dealing with student loan debt, employers can play a valuable role in ensuring their employees’ financial stability.   Employers are beginning to recognize this trend, as well. That’s why some have begun to offer help to employees with student loan debt. While an uncommon practice at the moment, some companies now offer options to help employees pay back their student loans.   The practice is rapidly becoming more popular, and if you’re lucky, your employer may already offer a student debt relief program. Here are several ways employers are already helping to reduce their employees' student loan debt.  

Financial Education

Employers have begun to understand that their own financial success is tied to the financial success of their employees. As a result, some employers have begun to offer financial education opportunities.   These opportunities come in many forms, including workshops, webinars and even counseling. While many employees already have a firm grasp on financial concepts, these programs can still be incredibly beneficial to those weighed down by student debt as they often cover lesser-known tactics and reinforce familiar strategies.  

Student Loan Repayment Signing Bonuses

Another method of helping employees with student debt is the signing bonus. For example, some companies offer $1,000 towards student loans for new hires. This $1000 can drastically reduce the amount graduates pay in interest over the life of their student loans and is an effective way for companies to hire and keep dedicated, hardworking employees.  

Employer Repayment

The most exciting benefit employers are beginning to adopt is direct assistance with student loans. Now, in addition to savvy fiscal advice, some companies are backing up their support with dollars and cents.   A few companies now offer yearly bonuses to help pay back student loans. One of the most generous of these companies is Nvidia. Employees earn $6,000 a year towards their student loans up to a $30,000 maximum. Several companies offer comparable or lower amounts. Regardless of the repayment amounts, this innovative strategy provides a new way to fight back against student debt.   A variation of this policy is occasionally used, as well. In this variation, employees who don’t take their PTO can trade their PTO days for student loan assistance. With many in the United States not taking their PTO days anyway, this is a compelling option for student loan borrowers.  

Contributions to 401(k) Plans

It may seem strange for 401(k) contributions to go hand-in-hand with paying off student debt. You might even expect to have to choose between them.   If you’re employed by Abbott Laboratories, though, you don’t have to choose. Employees who contribute at least 2% of their pay toward student loans are eligible for the full 5% employer matching in their 401(k), even if they do not otherwise contribute to their 401(k). Abbott Laboratories is the first company to offer this incentive to help employees to pay off student debt, and hopefully many companies will follow in their footsteps.   Sadly, these types of programs are not as commonly offered as they should be, but that isn’t necessarily bad news for you.   If student loan assistance programs are something that you would like to see at your company, then make an appointment to speak with either your boss or to human resources. In this day and age, the competition for the best employees is fierce, and employers are always looking for ways to keep employees happy. In some cases, it may even be cheaper than a raise.   It’s also worth mentioning your interest in such programs while negotiating your salary and benefits package for a new job. They may include it as an additional benefit.   If your employer already provides these benefits, that’s fantastic! You’re already one step closer to being unburdened by student debt. If you're curious about how to finish the job and free yourself from student debt completely, one great way to do that is Student Loan Refinancing. You can learn more here.  
  Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.
calculator showing interest
2020-08-04
Student Loans: What is the Difference Between a Principal and an Interest Payment?

If you’re planning on going to college, you should be prepared for potentially high costs. The average cost of tuition and fees at a public four-year university for an in-state student is $10,440, while it’s $36,880 at a private school.    By Kat Tretina   While those numbers are pricey enough on their own, financing can add to the expense. If you borrow money to cover the total cost of attendance, you’ll end up repaying more than you initially borrowed because of interest charges — what lenders charge you in exchange for lending you money.    When dealing with student loans, it’s important to understand how student loan interest rates affect your repayment and how your extra payments are applied to your debt.   

How Student Loan Interest Rates Affect Your Loan Balance

Student loan interest rates can cause your loan balance to grow over time. The higher the rate, the more interest that accrues.    For example, if you took out $30,000 in student loans and qualified for a 10-year loan at 4% interest, you’d pay $6,448 in interest charges on top of the $30,000 you borrowed.    But if you qualified for a $30,000 loan at 5% interest — a difference of just 1% — you’d pay $8,184 in interest charges. The extra percentage point would cause you to pay over $1,700 more in interest charges.    However, you can cut down on interest payments by paying off your debt ahead of schedule. When you pay off your loans early, less interest accrues over your loan's life, allowing you to save money.   

The Difference Between Principal and Interest Payments

When you enter into repayment, your loan payments cover two different aspects: 
    • Interest: Interest that has accrued to date
    • Principal: The original loan amount
  When you make a payment, lenders typically apply the payment to any fees first, such as late fees or returned payment fees, then to interest charges. If any money is left over, they will apply the excess to the principal balance.   

Education Loan Finance Student Loan Repayment Options

If you take out private student loans from ELFI*, you can choose from the following repayment options: 
    • Immediate repayment: You make payments toward the principal and interest right after disbursement
      • Best for: You’re working while in school and can afford the payments. You want to pay the least amount of interest possible. 
    • Interest only: While you’re in school, you make payments that only cover the interest that accrues on the loan. 
      • Best for: You can’t afford to make full payments, but you want to minimize interest charges. You’re working part-time or have some income while in school. 
    • Partial payment: With partial payments, you make a flat-rate payment — typically $25 — while you’re in school. 
      • Best for: Money is tight while you’re in school, but you want to chip away at some of the interest that accrues. 
    • Fully deferred: If you opt for fully deferred repayment, you don’t make any payments at all while you’re in school. This is the most expensive repayment option, as more interest accrues over the life of the loan. 
      • Best for: You are in a rigorous academic program and need to completely focus on your studies, so you don’t want to make any payments while in school. 
  Use the private student loan calculator to see what your payment would be and how much you’d repay over the life of the loan under each repayment plan.*   

Student Loan Repayment Strategies to Pay Off Your Debt Faster

Once you graduate, there are ways to accelerate your debt repayment and reduce the amount of interest that accrues.   

1. Make Extra Payments

If you want to pay off your debt faster and are thinking about different student loan repayment strategies, consider increasing your minimum monthly payments.    More of your payment will go toward the principal each month, reducing how much you’ll pay in interest and allowing you to pay off the debt ahead of schedule.    For example, if you had $30,000 in student loans at 5% interest and a 10-year repayment term, your monthly payment would be $318 per month. If you only made the minimum payments, you’d repay a total of $38,192 by the end of your loan term.    If you increase your payments to $368 per month — an addition of just $50 per month — you’d pay off your loans 20 months early. And, you’d repay just $36,731. By adjusting your monthly payment, you’d save $1,461.   

2. Use the Debt Avalanche or Debt Snowball Methods

If you have multiple student loans, consider using either the debt avalanche or debt snowball method to tackle your debt.    With the debt avalanche method, you make extra payments toward the loan with the highest interest rate.    With the debt snowball, you target the debt with the lowest balance first.    Which is best for you? It depends on your goals and personality. Learn more in our breakdown of the debt snowball and debt avalanche method repayment strategies  

3. Refinance Your Debt

Student loan interest rates have a big impact on your overall repayment. By refinancing your student loans,* you can qualify for a lower interest rate so more of your monthly payment goes toward the principal. Over time, refinancing can help you save a significant amount of money.   

The Bottom Line

By understanding how payments work and how student loan interest rates affect your total repayment, you can pick a repayment plan that works for you.    If you still have questions, ELFI’s Personal Loan Advisors can walk you through the loan application process and answer any questions you have.*  
  *Subject to credit approval. Terms and conditions apply.   Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.